OPINION:
Giant, must-pass bills are the most loved and hated of all legislation: loved because they are often the mules that carry certain legislators’ favorite bills that can’t pass by themselves, hated by other legislators for the same reason (in addition to their usually enormous size, lack of transparency and, typically, immunity from amendments).
The two big government funding bills that will have to succeed the recently passed continuing resolutions are likely to carry a number of bad policy bills unless Republicans hold the line and keep these spending bills clean.
One category of bad ideas some are pushing to include in the spending legislation are bills designed to restrict the ability of pharmacy benefit managers to freely negotiate prescription drug prices on behalf of insurance plan sponsors, i.e., employers.
PBMs have become the latest whipping boy in the perennial fight over prescription drug prices. Blaming them for high prices is a failure in diagnosing the problem. Restricting them legislatively will almost certainly result in higher drug and insurance costs for consumers — exactly the opposite of legislators’ intentions.
PBMs’ core function in the prescription drug market is to negotiate lower prices from pharmaceutical companies for employers, enabling them to offer more affordable, comprehensive coverage to their employees. The big pharmaceutical companies are national, often international, firms with tremendous market power. Most insurance companies and employers are much smaller.
PBMs act as aggregators of health insurance plan sponsors’ purchasing power. They create much greater negotiating power than most individual insurers or employers on their own. Employers voluntarily hire PBMs to help them secure lower prices on prescription drugs for their employees. If PBMs weren’t effective in lowering costs, then employers would not hire them.
Nevertheless, several misguided proposals have been introduced to undermine PBMs. Some would bar PBMs from sharing in the savings or rebates they secure. This would diminish the incentive for PBMs to negotiate savings in drug purchases. Unsurprisingly, it would probably result in less savings in drug purchases, i.e., higher prices and insurance premiums for consumers.
As University of Chicago economics professor Casey Mulligan recently explained: “Incentives matter for PBMs just as they do for other market participants. A financial reward for greater rebates and discounts results in greater rebates and discounts. Conversely, eliminating pay for PBM performance would reduce PBM performance.”
If Congress were to pass a proposal that takes away that performance-based incentive, we could see premiums in the commercial health insurance market skyrocket an astronomical $26.6 billion annually, according to Alex Brill, founder and CEO of Matrix Global Advisors and former policy director and chief economist for the House Committee on Ways and Means. Few Americans who rely on their employers for health insurance would escape higher premiums, higher drug costs or both.
Another bad legislative idea would force PBMs to publicly disclose the proprietary prices they negotiate with the drug companies. The principal effect of this would be to diminish PBMs’ negotiating power, resulting in, you guessed it, higher drug prices for PBMs’ customers. In addition to mandating public disclosure of private business negotiations, certain proposals would also give the Federal Trade Commission, already out of control under Chair Lina Khan, vague and potentially sweeping authority to intervene in business-to-business transactions, offering a dangerous precedent for any industry.
My concern that restricting PBMs would result in higher health insurance premiums is shared by the Congressional Budget Office. CBO estimated that a proposal from the previous administration to eliminate the rebates secured by PBMs in the Medicare Part D program, also known as the “rebate rule,” would have resulted in a $177 billion increase in federal spending from 2020 to 2029.
According to the Centers for Medicare & Medicaid Services’ Office of the Actuary, the rebate rule would have also increased premiums for older Americans by $50 billion over a 10-year span. Fortunately, the rule was withdrawn once by the administration and later permanently shelved by Congress.
The rapidly approaching government funding bills will provide tempting targets for those who would like to handcuff PBMs — despite the negative consequences. But with Republican control of the House and the need for Senate bills to pass with bipartisan votes, these bills can’t pass without Republican complicity.
Voters don’t send Republicans to Congress to join Democrats in voting to increase government control over businesses, especially when those controls will result in higher costs for the voters. Republicans would be wise to remember that as they negotiate this year’s final spending bills.
• Pat Toomey served as a U.S. senator from Pennsylvania from 2011 to 2023 and in the House of Representatives from 1999 to 2005. He serves as an adviser to the Pharmaceutical Care Management Association.
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